I found the link to find out if the engine is good or not:
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CDIQFjAC&url=http%3A%2F%2Fwww.autoshop101.com%2Fforms%2Fh27.pdf&ei=Im9OVPzgGoLZmgXtgoKAAw&usg=AFQjCNE31G-KBY05yVRry9YN38qEx7QEfQ&sig2=UUNE1WUogFig7-g-uI0mRw
Its a google document that has instructions on how to pull codes from an older toyota engine. But it also has information on how to test whether the oxygen sensor is giving a true reading or not.
The information is listed near the end of the PDF, look for this title:
USING VF TERMINAL AS A CLOSED LOOP AND A/F RATIO MONITOR and follow the instructions there.